Win Percentage and Profitability

Image credits: www.mercenarytrader.com

Win percentage is the most deceiving factor in a trading journal. What must be prominent is in fact, the profitability instead of the winning percentage. It does not make sense even if you have a 99% of win percentage, and that one trade out of hundred, wipes out all the profit.

So what is a good win percentage and how does it correlate with the profitability?

Let’s find out.

Win percentage and R:R

Logically, higher the win percentage the higher the profitability is, right? Although it does make sense logically, it’s not practical to get outstanding numbers as win rate. I mean win rates of over 80%. Why? simply because the profitability of a system depends on risk to reward ratio. When you maintain a positive R:R the probability of winning goes below 50%. Its simple mathematics. If you have a positive R:R and a win rate of above 50%, you probably are sitting on a gold mine. So a high hit rate alone is not sufficient to be profitable. A high win percentage along with a positive R:R is the key for profitability.

It’s not always the strategy

When we analyze a trading journal, we assume that it’s the strategy that fluctuates win percentage. It’s not the case. Especially with manual trading strategies. There are other factors that can hurt the win rate. Such as not understanding trade context, time frames and wave patterns. The list is endless. Combined, these can severely damage profitability even if you have the best of strategies. So if you are looking to improve your win percentage, stop looking for new strategies, instead make improvements to other areas of your trading.

The two daemons

I kept the major culprits for last. Fear and greed. We all have these two daemons with us. It’s only a matter of how capable are you to keep these culprits from interfering in your trades. Master discipline and you would have improved your win percentage and profitability by many folds. But its easier said than done. A simple first step is to know when you have done something as a reason of these emotions. Keep count of the mistakes you do and have goals to reduce those mistakes too, as well as to earn profits. Clicking out trades because of fear; as well as expecting unrealistic take-profit targets because of greed; have a huge say in your win percentage as well as the profitability.

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Disclaimer

READ THIS BEFORE YOU INVEST IN TRADING: Forex trading carries a high level of risk and you should only trade with money you can afford to lose. You can lose your capital and more. Please understand and apply risk and capital management, more importantly familiarize yourself with the risks involved in this business.
NFA and CTFC Required Disclaimers: Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk.[Read More]